Raven Industries, Inc. (NASDAQ:RAVN) Fiscal 2021 Raven Industries Investor Day August 27, 2020 10:00 AM ET
Steven Brazones – Vice President and Chief Financial Officer
Dan Rykhus – Chief Executive Officer
Scott Wickersham – Aerostar’s Division Vice President
Lon Stroschein – Executive Director of Corporate Development
Wade Robey – Executive Director of Autonomy
Jim Nelson – Director of Engineering
Joe Beck – Business Director, Composites
Sarah Waltner – General Manager
Luke Pucket – Design Engineer
Jared Stearns – Investor Relations Manager
Good morning. And welcome to today’s Virtual Investor Relations Event. I am Steven Brazones, Raven’s Vice President and Chief Financial Officer. And I’m pleased to be with you today.
Today we have a great event in store for you. We are going to be highlighting our three strategic platforms for growth. First, you’re going to hear about Raven Thunderhead Balloon Systems. Next, you’re going to hear about Raven Composites. And we’re going to end the event with a long presentation on Raven Autonomy.
Joining me today will be Raven’s President and CEO, Dan Rykhus; Raven Aerostar’s Division Vice President, Scott Wickersham; Raven’s Executive Director of Corporate Development Lon Stroschein and Raven’s Executive Director of Autonomy, Wade Robey.
The format for today will be about a 60-minute presentation with videos and presenters, followed by a 30-minute Q&A session. Q&A on this event will be held through our platform. If you have a question, please go to the top of the screen and type that in. At the end of the session, we will have a quick changeover and then we will answer your questions.
From a housekeeping standpoint, today’s presentation will include forward-looking statements. And as a result, actual results may differ.
With that, I’m going to turn the platform over to Dan.
Steven, thank you. And welcome. Thanks, everybody for joining us today. And we’re thrilled to be able to explain our growth strategy to you in more detail. And as you’ll see, we’re very excited about the opportunities before us.
So I’ve been with Raven for 30 years now. And I can tell you the work that we’ve done over the last 10 years to prepare the company for today and these growth platforms sets us in a place that I’ve never seen before. The markets that we’re serving are entering transformational stages and the technology that we bring to the marketplace in each of these markets that you will hear about is setting us up for great success.
These are unprecedented times at Raven. First, I want to talk about Raven Autonomy. Over the last year, we’ve spent and invested $100 million in this initiative, and we intend to invest another $250 million in Raven Autonomy going forward. And that’s an indication of how strongly we feel about the position we have in this marketplace and the opportunity to really build the ag technology and equipment company for the future. And that’s what we’ll be doing over the next several years. We expect that initiative will deliver at least $300 million in annual revenue within five years, leading to $1 billion in annual revenue over the following five years.
Raven Composites is initiative which leverages our thin film with high value properties with rigid composites. And that’s what’s unique about this initiative. It’s our opportunity to move beyond our strong position in thin films, and move into the combination of those films with rigid composites to serve transportation, recreation and construction and other markets along the way, with very unique value propositions.
And finally, Raven Aerostar has been at it for several years now, building the Thunderhead Balloon Platform System, integrating different sensor technologies to deliver communication and surveillance capabilities at the stratosphere. We’re the clear market leader in this emerging market and growing market today. We’ve earned that position and we hold it, and this is a market that we believe will continue to grow substantially, and I look forward to Scott telling you a lot more detail about that. So as you can see, I could go on and on this morning about a lot of detail on each of these growth initiatives. But as Steven said, we’re going to share the podium today with some of the people from our team, some of the executive leaders who are making all this happen, and give you that opportunity to hear from them directly.
So with that, I’m going to hand it over to Scott Wickersham and invite him up here.
Thanks, Dan. Good morning, everybody. As Dan said, I’m Scott Wickersham. I’m the Division Vice President for Raven Aerostar. So, Raven started nearly 60 years ago or over 60 years ago as a stratospheric balloon company. And during the last 60 years as we have been the leader in that market and developing new technologies and capabilities to continue to support that market. For about the last 30 years, it’s been a pretty small market. It’s been mostly focused on science and research. But about 10 years ago, we started doing some investments and created technology that is putting us in position to deliver new capabilities in a new and emerging market. I’m going to turn it to a video here of Jim Nelson, who’s our Raven Aerostar’s Director of Engineering. And he’s going to explain some of the a little bit of a thunder head in this emerging market.
Alright. Jim did a great job of explaining the information around Thunderhead and also giving you a little bit of a unique view of the world that we operate in.
So I’m going to take a little bit here and talk about how Thunderhead works and what makes it unique. So, again, balloons have been around for a long, long time. And traditionally what happens you fill a balloon, you launch it, it goes to an altitude. And then obviously it goes in the directions that the winds are taking it. So the ability to change altitudes and find winds that are going in different directions, that’s what Thunderhead offers. And with that, we have the ability to navigate balloons.
If you look at the graphic on the lower left, you’ll see this is the lifecycle of a balloon. It goes up, we navigate it to an area of interest. Then while we’re in the area of interest, we navigate it to stay there for as long as we’d like it to, navigate out of that and then recover it in an area that we designate.
Up on the right you’ll see an animation of how our Thunderhead Balloon systems work. And you can see how they can work in combination with other Thunderhead Balloon systems to make sure that we are providing persistent coverage in areas of interest or covering an area that may be underserved by existing technology.
So why does this matter? And I’m just going to pick one example here that, that I think we can all relate with pretty easily if we pay attention to the news. So, over the last 50 years plus, we have invested so much within our Department of Defense around space, and the infrastructure around space. And in the last 10 years, there’s been some real emerging threats around with our adversaries around our satellite technology in space. So, we’ve been the dominant player in space for decades. And our infrastructure that’s built around that is under threat.
So Thunderhead provides an opportunity to augment that or provide some resiliency around the capabilities that are provided with that. So, imagine waking up in a world where there is no GPS. The ability for our Thunderhead Balloon systems to augment that, is extremely interesting to the Department of Defense. And you can imagine the amount of investments that put to put some resiliency in the satellite capabilities that we have today.
So now if you think in a bigger picture, within just the Department of Defense there are all sorts of other capabilities from intelligence gathering, surveillance, communications, P&T, the list is far and wide. We have flown dozens of different payloads that provide different capabilities. And the Department of Defense is really excited about that.
So, if you look at where we are at with this? On the right, you’ll see a graph and you can see an exponential decline in the number of flights that we have been doing on an annual basis. This graph goes back to 2017. We really started doing flights for the government back in 2015. And it really started out as a situation where it was met with a lot of skepticism. And over the last five years, we have continued to demonstrate capability that this has gone from an area of skepticism, to an area of belief that this provides a capability that our Department of Defense needs. They are investing in tests and demonstrations currently, at a really significant level, and we can see a path to this becoming an operational capability within our Department of Defense. We’re really excited about that. If you think about all of the investments that exist in satellites and aircraft today, it’s billions. And the ability to augment or replace that capability with a lower cost solution is very, very attractive. The government right now is funding us at a test and demonstration level, and they have mapped out with us a path for this to become a Department of Defense operational capability. We’re really excited about that, and I think the market opportunity as it expands beyond the Department of Defense is much, much bigger as well. So, that’s where Thunderhead Balloon systems.
I’m going to turn it now to Lon Stroschein and his going to talk about Raven Composites. Thank you.
Thank you, Scott. My name is Lon Stroschein and I serve as the Executive Director of Corporate Development at Raven. And I’m going to talk to you today about Raven Composites. There’s a sign we swap every day when we walk into work at EFD and the sign just says thinner, lighter, stronger, because it defines who we are, how we compete, how we win business, how we win customers, how we take care of our customers and how we drive the margins that we’re able to drive in our division, and it’s something that we are very, very proud of.
We focus on high performance, high value multi-layer wide goods. And to some of that sounds sort of generic, but for us, it’s how we make our living every day, and it’s how we grow our revenues and drive profitability for ourselves and take care of our customers in their needs. Over the last, since COVID actually, I’ve been spending a lot more time in EFD. It really trying to immerse myself in the strategy and the Composite strategy and learning a lot more about what it is that makes us who we are. And the thing that I’ve come up with as kind of an outsider is that, Raven shows up when the product can’t fail. And it almost doesn’t matter what it is. It can be a grain cover, covering millions of dollars of assets for farmers from coast-to-coast. It can be pond liners and tank liners, protecting natural resources. It can be a whole myriad of things. But we get the call when the product can’t fail and we show up and we arrive and we do the job very, very well, and it’s something that we take very seriously. And over the decades that we’ve been in this marketplace, we built expertise in wide with we reinforced multi-layer materials, and I felt it was necessary to remind you of what our strategy is and has been and how we’ve been successful.
I’m going to play a little video now by Joe Beck. Joe Beck is the Composites Business Director for Raven EFD, and he’s going to walk you through just a little bit about Composites and what they are and how we envision using them in our products.
So, Joe does a nice job kind of walking through what composites is. And on the side that you see now you can see the composites in the center and you can see all the other layers or the films that we already provide for composites today.
So I thought we start out really quickly just reminding you, in November, we talked about this this bold strategy to move into composites. And we’ve thought would be nice to just to give a little update of what’s happened since that time. And we started at that time, we had a nice pipeline of acquisitions that we were working with. We also had a number of infrastructure facility upgrades that we were working on at the time. And then COVID came along. And we said, very strategically and very thoughtfully, look for the time being, let’s just put a pause on a couple of these things.
But more recently, in the last 30 days, we decided that now’s the time to actually not take a pause and lean forward and move out and get active and all these fronts all over again.
So maybe the headline here is, nothing’s changed from a strategy that we announced in November.
So I want to talk about composites and why composites? I mentioned earlier that we compete in high value, laminated multi-layer reinforced goods. And we’ve got a history of investing in this — in these areas. And we invest through our facilities. We invest through our lines. We invest through the expertise that we bring into the house. And we believe that it’s this element and this formulation that helps us compete on thinner, lighter, stronger materials that help our customers achieve what they need to achieve at the end of the day.
I also want to talk about our expansion, which feels like an expansion into Raven Composites. But I felt like I need to take this opportunity to tell you that this isn’t an expansion from where we sit. Composites isn’t something new to us. In fact, 40% of our revenue in engineered films is from a composite product. It’s a soft composite with a string material inside of it, but a composite nonetheless a strength member inside of it. And we are very comfortable with selling, promoting, manufacturing, fabricating and providing these products into the marketplace.
And the second is surface films. We provide surface films, the outer layers that you see when you see a composite to the market today. So from our standpoint, when we look at this strategy is bold from an investment standpoint, not as bold from a big risk, big, big jump into a market that we don’t understand what we’re doing.
So when you think of composites, we think of composites and how we want to compete as an opportunity for us to use our products anywhere you see plywood, with an outer surface or Luan with an outer surface. And those are the places we want to move into. And we think we envision near term opportunities in industrial markets with trucks and RVs and long-term opportunities and ag, constructions, geo and potentially automotive in the out years. Our market opportunities are continuing — continuously expanding and we’re excited about what we’re doing.
The global market for composites is substantial. We think just the markets we serve today and the customers that we have and have been engaged with are going to increase our addressable market by five times our films market. And that is exciting to us. There’s a utility for composites in each of the markets we serve and we’re starting to have those conversations with existing customers and how our composites or composite strategy can help them do their job better.
So I’m going to talk a little bit about, why we’re excited and without a doubt, this strategy to invest in composites leverages our endowment. The investments we’ve made over the last 10, 20 and 30 years in engineered films are ready for this moment and are ready to take our technology into composites, and we know we can solve this challenge. We’ve got a history of success in surface films, and we’ve got a history of success in soft composites, and it builds upon our mantra, thinner, lighter and stronger. Our endowment has made us ready and we are really excited to just get going.
So, last thing I want to say is that, when COVID happened, it was every company’s strategy is ultimate stress test, and that the true can be said for composites. But when we came out the other side in the middle of COVID, we realized that, our strategy for composites had never been more in demand than, it was during COVID. So, we are excited to get back in and get investing, and we’re in the process now of bringing in equipment, creating facilities. We are hiring individuals and we’re strengthening our strategic relationships and partnerships with companies and we’re in advanced R&D stages with many of them to start providing composite solutions later this year.
So with that, I’m going to conclude Raven Composites and I’m going to introduce Wade Robey who is the Executive Director of Raven Autonomy to walk you through that strategy. Thank you.
Thank you, Lon. Good morning, everyone. As Lon said, my name is Wade Robey and I have the unique opportunity to serve Raven as Executive Director of Raven Autonomy. As I thought about my remarks this morning, it’s hard not to think about, think back over your career and what you’ve been involved in over the course of that time, and I’ve had the very great opportunity to be part of animal nutrition and biotech and even renewable fuels. And as I thought about my remarks this morning, what struck me was that, I wouldn’t, there’s no place I’d rather be than where I am today. Although, all those technologies brought great innovation to Ag. We believe Raven Autonomy will take it to a new level of opportunity of productivity and a value to the farming community. So, very excited to be part of Raven Autonomy, and what I’ll share with you today, hopefully will lay out that vision for you for the future.
So, as I start my remarks this morning, what I’d like you to do is imagine a world where all the core elements of Ag are connected. They’re coordinated, and they’re optimized and optimized is an important word in that sentence. Today, a lot of the activities on farm are discreet. But with Autonomy will come the opportunity to bring all those together and really drive efficiency in a way that really hasn’t been possible before. As a result of that, we’ll reduce labor requirements. Safety will be increased and farmers and Ag retailers will realize even greater efficiency and productivity than what they’ve been able to do before. All of that will lead to more value per acre, in a better resolution for the farming operation.
So, the future is here today with Autonomy. Raven Autonomy is a bold new strategic platform for growth that we’re bringing forward, and what I’m going to share with you this morning is how Raven Autonomy will tie all those elements together and really lay-out the pathway for that future.
I’d like to start with the vision for Raven Autonomy. Since we are a new strategic platform for growth, I think it’s important to start with what our key vision is, and where we want to take this opportunity in Ag, and that is to be the global leader for the development and commercialization of the enabling technologies and vehicles necessary to accelerate the adoption and use of autonomous operations in precision agriculture. To improve productivity and efficiency and mitigate labor constraints. I know that’s a lot of words but there’s a couple of key elements of that vision that I’d like to highlight here first for you this morning.
First, playing on the legacy of what we have been doing for the last four decades in precision agriculture. Raven will be both in the development and the commercialization of these solutions and technologies. Today, we go to the market through our OEM partnerships into the aftermarket. We’re going to continue that in the future. And we’ll be bringing both discrete technologies, technology stacks and prime movers forward to the market.
So in the second slide here, a second bullet, that includes both the enabling technologies in the vehicles as I said. With the acquisition of that Raven is a machine platform OEM. So not only selling our technologies to go on prime movers we’ll bring prime movers to the market for you. That includes the dark platform today, but also new prime movers in the future.
All of that ties together to bring deliver and deliver sustained value to our customers, we’ll increase productivity as I mentioned, we’ll increased efficiency, we’ll reduce labor, but the focus will be on sustainability and overall value on farm. All of those will be delivered by Raven Autonomy.
So why are we doing this? We have, again, a long legacy in history and precision agriculture. Why are we making this new investment for this strategic platform? Well, the reason is the challenge for the future persists, how do we feed a hungry world that has been the challenge for many, many years and Raven Autonomy will help deliver against that challenge. What I’m going to show you here in the two sections of this slide, our two very wellknown concepts. First, the population is dramatically increasing. This has been going on for many, many years now. And the demographics are shifting as well. As you can see on the left side of this chart, people continue to move off farm they moved to the urban areas. And on the left side, you see it’s even more significant in the underdeveloped portions of the world.
As those areas come up in a influence, this becomes a critical challenge to deliver protein and calories to that population. They simply want to eat better as their life improves. And today, agriculture is not in a good position to deliver on that challenge.
On the right side of this chart, you see that the number of farms that continue to decrease as we see consolidation. As a result, average farm size increases, which heightens the need for productivity on farm. And a very important part of this chart is that the overall land available for agriculture is not increasing. This means productivity absolutely has to increase. It’s the only way we’ll meet the challenge in the future. And well, I’ll tell you this morning is that autonomy is going to allow us to deliver on that need.
So as we look back at precision ag over the last few decades, we’ve been very fortunate. Precision ag through a variety of technologies has had dramatic improvements on productivity. We’ve seen significant reductions in fertilizer used, herbicide use and pesticides. That’s resulted in improved efficiency on farm and reductions in fossil fuels, making the overall farm more sustainable. In addition, we’ve seen reductions in water use all of these are very excellent, but we’re reaching a bit of a plateau. Biotech has almost been fully realized in terms of the benefits that it’s showing. And there needs to be additional productivity gains that we can bring to our farmers to our ag retailers.
Autonomy is going to allow us to do that. We’ll see significant gains in productivity that’ll leverage what we’ve seen today with precision ag technologies. We’ll also see reductions in all these key inputs that will not only improve the sustainability of farming, it’ll improve the economic value of what’s delivered per acre. Productivity will increase, costs will go down, overall efficiency will increase. How can we make that happen? Well, one of the ways autonomy will bring this will be through the coordination the ability to optimize the overall ag solution in a way we’ve never been able to do it before. So as you look at this chart, and you think about how an ag operation needs to be executed, whether it’s planning the mission, connecting all the equipment that needs to be part of the equation, coordinating the applications, and then recovering the data and analyzing how we do.
All those aspects will be better coordinated and optimized with autonomy. It’ll extend digital ag and all the technologies we’re starting to see enter the industry today. As a result of this, every aspect of the application, whether it be tilling or seeding, spreading, spraying, harvesting. Again, they’ll all be connected, they’ll be coordinated, we’ll be able to optimize them in ways we haven’t been able to do previously.
That means real value will be delivered. There’ll be fewer trips across the farm field, because the operations will be more choreographed and coordinated. We’ll see reduced fuel consumption. That’ll also cause more limited soil compaction from those fewer trips. And really importantly on this slide, because autonomy will allow us to become more efficient and more precise in what we do. All the different elements of seeding and fertilizer application chemical use will become more optimized. We’ll see less crop damage, we’ll see improved yield, all of those things will add value to the proposition for the farmer.
We’ll also have better regulatory compliance. Being able to control all of these elements in a more prescribed way, running those in a way that are optimized, we’ll see applications on farm fitting more closely within what’s required by regulatory and by rule. In addition, that’ll create a chain of custody around these applications and our ability to validate what was actually applied on farm. And then finally, not least, but finally, I’ll mention here that labor will be reduced.
We see autonomy is really dramatically reducing labor requirements and improving the applications that occur with the labor that we have. But I wanted to stress here that it’s only one element as a full value proposition. All these other elements on this flag will really help drive the value that farmers will see. So why Raven, why is Raven best position to bring this platform forward into invest in autonomy?
Well, as I’ve mentioned, we have decades of experience in precision ag over 42 years now. We know the market. We work closely with our OEM partners. And we also go-to-market in the aftermarket working with dealers and direct customers, large enterprise farms. So we have that connection to the market and awareness of what our customer needs. We also have a very long history of class leading innovations.
All of our platforms are world class leading, whether it’s communication, guidance and steering, field computers, all the different technologies, we bring forward that are part of our portfolio are recognized in the market is bringing through differentiating value. This really puts Raven in the position it provides us the endowment to bring autonomy forward.
So that’s what I’ll move to next. As you see this pyramid, this is how we think about going to market. We bring world class hardware together, we bring software operating systems embedded software’s, software to make that hardware work in a real differentiating and value proposition way. We layer on top of that services and support, which give our customers the assurance that our products will work in the field every time and provide the value that they really need.
So in summary, as we look at autonomy and as we think about why we came forward with this initiative, with this new platform, we’re really building on all these different elements you see here on this chart. The information and management logistics that Raven has invested in, our field computers and control technology, guidance and steering. The control and value we bring out onto the implement, whether it’s application control, rate control, boom control, all of these elements coalesce that are necessary for autonomy to work, whether it’s semi autonomy or full autonomy.
Without this endowment, without these platforms, Raven could not be as competitive as will be. And this will provide the real differentiating value that Raven will have in the marketplace. So now I hopefully what I’ve shared with you so far in this presentation is that there is a tremendous challenge out there. We have to improve productivity to meet the challenge of agriculture. Raven has the technology, the history to bring this platform forward and we’re well positioned to do so.
Now what I’d like to do is shift and have two of our leaders in the applied technologies division tell you a little bit more about some of the key component technologies that’ll be part of what we bring forward with autonomy. The first will be Sarah Waltner, who’s our General Manager. She’s going to talk about Slingshot, which is our communication data transfer technology that has now been married with AgSync, a recent acquisition that brings the logistics and overall enterprise coordination of on-field operations. She’ll walk you through that and explain to you how this fits not only within our current portfolio, but how it will tie in with autonomy.
Next you’ll hear from Luke Pucket, Luke is one of our Leading Engineers in Applied Technology. Luke has been part of the development of a technology we called VSN or our visual based guidance system. VSN allows an ag retailer or a farmer to drive a autonomy or drive equipment down a field without GPS guidance and not have to steer. It allows the machine to follow the row using both camera and radar based technology to really improve the application and the ease at which we make chemical and fertilizer applications. This allows ag retailers, farmers to do more acres per day and do it with less crop damage in the resulted with better yield.
So now I’m going to turn it over to Sarah and Luke and let them talk to you about these technologies.
I was watching those videos over the last few minutes, you couldn’t see me. I was off camera, but I was just smiling and it’s hard to watch Luke and Sarah described those technologies and what they mean to our customers, without feeling a real sense of excitement. I’ve had the opportunity to work with both of these individuals for the last four years during my time with Raven and I’ve got to see these technologies be developed through our engineering team, and it’s been really outstanding. I mean these guys have done such a great job and have identified the needs of our customers and brought these technologies forward.
Hopefully what that gave you in those two presentations was a sense of what the underlying technologies are that Raven brings to the table, as we launched this platform for Autonomy. It’s without Slingshot and the data connecting ability that we have through that platform and through AgSync, without technologies like VSN, which really our step a on semi-Autonomy towards full Autonomy. We wouldn’t be as successful with this platform, as we know, we will be. We’re going to be able to bring all these platforms together in a way that no other company can and really create the kind of differentiating value that’ll make Autonomy a reality for the future. So, now I’m going to shift a little bit, and I’m going to talk about why we made these investments and I’ll show you a few slides, which kind of walk us through where Raven was prior to our investments and where we’ll be in the future.
So, as we looked at all the different steps or portions of a Ag operation that need to be brought together to make it successful, we think about things on the left hand side here, like field operations, what actually needs to get done. Moving to machine selection, what type of machine do I need to bring to the field? Is it a sprayer? Is it a tractor? What sort of machine do I need to run in my seeding in my spraying and my adding nutrient? Then the overall operations, how do I execute those? How do I get the kind of application control necessary to really see the value proposition that precision Ag allows? And then once it’s complete, how do I gather that data, that information? How do I transfer that? How do I create the reports so that I can ultimately optimize this overall operation, because if we look at all these individually or discretely, we can be excellent in individual elements of the operation, and really not get the true value that precision ag and ultimately Autonomy is going to bring, which allows all of these to be brought together and optimized in a way that has never been possible before.
So as Raven looked at its core technology and we’ve talked a little bit about that this morning and I’ve shown you some of those elements, we were excellent in the equipment, the technology side that allows the mission to be executed. So whether it’s application control, machine control, boom leveling technologies, Raven was really strong and all of these technologies and brought class leading solutions to the marketplace.
With our Slingshot capability, we also were really good at report generation, being able to move data around and get the maximum value from what we were able to collect on field in terms of as applied mass and other references to what the application had been. But we knew there were some areas that we were frankly missing. So as we look forward, and we made the acquisition a little over a year ago with AgSync, it allowed us to improve grammatically our field operations, it complimented the equipment selection and allowed us to monitor those that equipment and track it in a much better way. And it certainly greatly enhanced our report generation capability.
So AgSync was that next step which allowed us to really strengthen Slingshot, and that overall logistics platform that we’ve been building for over a decade now.
With Smart Ag, we realized that there were certain elements that as we moved to semi-Autonomy and full-Autonomy, we simply didn’t have in our portfolio yet. Smart Ag was just a brilliant set of engineers in Ames, Iowa, that had developed an AutoCart technology that would allow us to not only have a perception and obstacle avoidance system, but also allow an AutoCart to be automated with a harvesting operation. So we saw improvements in our mission planning capability, certainly in mission execution, but really big brought tremendous opportunity to us in our portfolio for optimization.
There’s a lot of activities in the ag operation that we’ll have to happen in the cloud, but there’s also a lot that will happen at the edge on board in the in the piece of agricultural equipment. AI and the opportunity to react to the environment and make decisions on the fly are going to be critically important, not only in full-Autonomy, but also semi-Autonomy in the next couple of years. Our Smart Ag brought that additional capability in AI, and it’s been a great move forward for our platform.
Next we, we made person investment in DOT and then an acquisition of DOT here just a month or two ago. And there were really great reasons for that. We have long standing relationships with our OEM partners, as I’ve mentioned, but we didn’t have a way to bring all of this together in a turnkey solution to the marketplace. So that gives us that prime mover that allows us to accelerate Autonomy into the marketplace and really allow the industry to reach a tipping point at a much faster pace. We also strengthen our mission planning and mission execution with DOT. In a moment I’ll talk to you about DOT in the various elements that it brings to the table for these missions that never run in the field.
But when we look at this in total, now with our core technology coupled with AgSync, with Smart Ag, with DOT, we really have the full solution that we can bring forward. This enables not only semi-Autonomy, but will enable Autonomy in the future. This is why we made these investments over the last few years. There will be more technology that we’re going to bring forward. There’ll be more partnerships and acquisitions will make as Autonomy evolves, but we’re really now very well positioned to bring Autonomy into the market for the first time.
Now I’m going to talk to you a little bit about Smart Ag and DOT specifically, I’ll update you on those technologies. I’ll show you some videos about how they perform in the field. And that’ll give you a better idea of what we’re bringing forward now to the marketplace.
So here you see an example of AutoCart in the field today. We happen to be harvesting oats in South Dakota. This film was actually shot a few weeks ago, I had the opportunity to be there. And it shows as you see a driverless tractor being called by a harvester, and coming up to receive the load so that the harvester can continue operations.
Now, why is this important? And what did we bring into the portfolio when we acquired Smart Ag? Well, as I mentioned, we had just a tremendous set of engineers and data scientists in AMS that that we are now part of our Raven ATD team. So that was a tremendous move forward for our program. But they also had developed a world class perception system a system that detects obstacles and can allow the tractor to react. This is a critical need or a component for making the harvesting operation autonomous.
So when the harvester is ready to unload its load, it calls the tractor it comes up and approaches alongside. It’s actually syncs with the harvester. So that’s going to avoid the opportunity for accidents, for mistakes, for the opportunity for product to be lost during the transfer. And it really improves the efficiency of this overall operation.
Once the load has been transferred to the to the grain cart, the cart then can peel away and go to a designated location for unloading. This means that the farmer can continue to operate the harvest through the combine and not have to stop and do this operation himself or herself, or have other labor do this activity. This improves the efficiency of this operation and allows the harvester to really focus on the activity at hand that will improve the harvesting process, allow it to be executed in a more timely in a rapid manner, and just improve the overall efficiency of that operation.
So how do we do that? Well, there’s a range of technologies that we place on the tractor in the combine that enable AutoCart to work. Here you see a picture of the radar that’s mounted on the front of the tractor. We also have camera systems. Then you see our RS1 system on the roof of the tractor as well, that provides the processor and some of the guidance capability that AutoCart requires.
So all of these technologies come together to provide an AutoCart solution that is truly autonomous for the farmer, and really is our first offering into the marketplaces as Raven Autonomy. We’ll be launching this product in the fall — in December of this year, and we’re excited to bring it to the market.
So now I’m going to shift and just to wrap up AutoCart. I’ll go through a list of the key elements are attributes that AutoCart brings, and kind of walk you through the value proposition that you just saw.
So first, as I described, automating this part of the harvesting process allows for near continuous harvesting. This means that the farmer doesn’t have to stop. If he doesn’t have labor, get out, go get the tractor, bring it over do the unloading process and have downtime. It also means that he doesn’t have to have additional labor there to drive that tractor. So that allows for continuous harvesting. That translates into more uptime as I mentioned, less downtime. And we find that there is an optimum time to plan till to harvest and allows the farmer to execute the harvesting operation within that window. And that can become very critical, when the maximum opportunity for yield is present.
As I mentioned during the video, and eliminates the product loss that can occur during transfer, it prevents the risk of accidents because the tractor actually stinks with the harvester and we can maintain the appropriate distance and then guided away to the unloading spot. So this allows the operation to be performed in a much more safe manner.
In time, we’ll bring the opportunity or the additional technology to allow multiple carts to be coordinated with a single harvester or multiple grain carts to be connected to multiple harvesters.
This means as the acreage is increases, the leverage of this gets larger and larger. That will create an overall efficiency to the operation that again has not been possible before.
The bottom line of all that is that there’ll be more efficiency on farm during harvesting and more money in the farmers pocket.
So next I’m going to talk a little bit about DOT. So we’ll show a video there and then I’ll walk you through the DOT value proposition as well.
So here you see a video of the the DOT. It’s kind of a walk around as a platform. It’s a U-shaped platform. Here the technician is removing the side panels, showing you how easy it is to access both the technology, but also the primary components of the DOT system, whether it be for a working on the engine or doing just routine servicing. It’s just a very convenient platform for the operator to work with.
DOT has been a technology under development for a number of years now. Raven actually began it’s cooperation with DOT, first under a joint development agreement before we made the investment. And then here last November, we made the majority investment in DOT, and then finally this past June, we made the final acquisition of this platform.
I hear you see it operating in the field as a single and as multiple seeders. We have multiple implements that work with DOT. You saw the seeder just a moment ago. This is an example of the grain cart that is manufactured by New Leader. New Leaders, a partner of ours that develops this implement for DOT. It’s a DOT-ready implement, and allows nutrient amendment to the field in an automated way now. So, this improves the efficiency and the timeliness of when nutrients can be provided and it allows us to be run in an autonomous way on the DOT platform.
The third improvement we have is a sprayer that was developed by Patterson. You see it in the video here. What’s interesting about the sprayer is that, it already includes the whole raft of Raven technologies, whether it’s in our Hawkeye application control system, our auto fold, our AutoBoom XRT boom leveling system. This sprayer is layered with Raven technology that makes it the best automated sprayer in the world, really the only that can work with a platform like DOT today.
All of these implements are necessary for the farming operation and it allows DOT to be useful across the whole course of the year. We’re excited to have brought the DOT team on board. We’re maintaining our engineering team up in Regina, and we’re looking to expand our presence in not only a Saskatchewan, but across Western Canada, where these important crops are grown. So, we’re excited about this acquisition, and it’s a great part of the overall Raven Autonomy platform. The DOT is operated as you see here by a path planning system, which allows the farmer to pre-plan the raft through the field to make an optimum to identify obstacles so that, the DOT can execute the mission flawlessly. In the future, we’re going to be bringing the perception system from Smart Ag onto DOT. This will allow to DOT to operate in a truly, fully autonomous mode and will allow it to detect obstacles and make decisions in the field as to how to proceed.
So, as we look now at the value proposition, let me run through that quickly and just highlight a couple of things you saw in the video. So, DOT allows the improved operational consistency, proceedings spraying and spreading. It does that through a unique set of implements that all marry with the DOT and become one contiguous, autonomous unit that operates in the field. Because of the Autonomy that’s provided in the opportunity to optimize the execution of the application, just like with AutoCart, we’re going to see reduced input costs.
In the case of DOT we’ll see improved product quality in yield, because again, those executions will be done in an optimum way. We’ll see reductions in fuel requirements and obviously reductions in labor. All of these add to the proposition and add to the value of DOT. Just like with AutoCart, because we’ll be automated and we’ll have a perception system on DOT that allows it to avoid obstacles. We’ll have the reduced potential for accidents. One of the important elements of Autonomy is that, autonomous operations will allow for 24×7 operation. We’ll be able to operate around the clock, doing whatever is necessary on farm to execute the farming operation. This will absolutely improve efficiency, and as I said, there are specific windows when seeding needs to be done, when spraying needs to be done, and sometimes those are very time-constrained. The ability to run around the clock with Autonomy will allow the farmer, the Ag retailer to hit those windows in an optimum way. Again, that will improve overall efficiency and yield. The overall operation will become more efficient and just like with AutoCart, there’ll be more value in the pocket of the farmer.
So one of the things that has been really gratifying since Raven made the announcements about autonomy and as we’ve begun to bring our solutions to the field is we’ve had tremendous support from the market. So that’s been both in terms of social media. And I show a couple of examples of this year in the print media we’ve had just been inundated with offers to be interviewed, to talk about our program and talk about our bold investments in autonomy. But we’ve also been contacted from all around the world by technology providers, by Tier 2 OEMs who want to build implements for DOT, who want to bring new technologies to our platform, to our portfolio.
Now that’s not only gratifying, but it also is going to put Raven in the position of being the leader in autonomy around the world. I’ve mentioned, we are in the pole position today, but this is one of the attributes that will allow us to maintain that leadership position, technologies all around the world will be want to be part of this program and part of Raven’s solution for autonomy. So this has been a great boom to our program.
So as we look forward there are a number of key milestones that we’re going to execute on over the next couple of years. This will allow autonomy to progress forward and for Raven to be successful with this new platform. First we’re going to be commercializing AutoCart in December of this year, I mentioned that a little earlier in the presentation, we’re presently validating dot with customers up in Western Canada.
We have about eight DOTs out in the field with various implements running directly on customers’ farms, in collaboration with farmers, as we do spraying, spreading and seeding operations, this is allowing us to demonstrate DOT, gather more data around DOT and the DOT value proposition, and really prove out by technology in the marketplace. Over the course of the next year, we’ll be establishing our autonomy manufacturing capability that will only be for DOT, but will be for other technologies that we want to bring to market. So that’ll be a key and important milestone for our program.
Next year we’ll launch DOT in Western Canada. We’re targeting small grains in this market because there’s a tremendous value proposition for DOT here. Looking beyond that, there’s a lot of technologies that are being developed as part of this portfolio. Not only the existing Raven technologies, but others that we’ll either sell discreetly or we’ll combine into Raven tech stacks, but we’ll begin commercializing those in 2022. And those will be a large part of the value that will drive the revenue and margin opportunity that we have before us.
In addition, and absolutely critical we’ll launch additional prime mover platforms. Raven is now an OEM with the DOT platform and we expect to continue as an OEM in the future. That means as we look beyond small grains and what DOT provide, there’ll be other prime movers, whether they be pulling platforms or spraying platforms that will become part of our portfolio and that will bring to market with our solutions. And then lastly, looking out in 2023 and beyond the market autonomy is global. So we’ll be expanding beyond North America there’s markets all around the world that are clamoring for this technology today. We’re partnering with those markets and we’ll be bringing our autonomy forward around the world.
This allows us to expand our OEM partnerships. It’s going to allow us to develop those new channels and leverage them. And we’re building an enormously strong IP portfolio, whether it be on technology or platforms, Raven is putting together an IP portfolio that will allow us to create a differentiating position in the marketplace. So as we look at the revenue opportunity, I know Dan and Steven had mentioned this earlier, but there’s tremendous growth opportunity for Raven autonomy. If you look out over the next few years to 2025 and beyond, we believe we’ll achieve a 300 million or greater top line growth, just with Raven Autonomy sales.
Now that’ll be comprised of a number of different things. There’s not only the prime mover platforms, that’ll be a large contributor, but I also mentioned the technologies in tech stacks. Lastly, this will allow us to evolve our offering in a way that we’ve been seeking to over the last couple of years. We’ll bring more technology through subscription, that will allow customers to have a smaller upfront costs and amortize that cost of that technology overtime.
This will also allow Raven to create really sustained partnerships with these customers and create customers that stay with us for the long-term. So, we’re excited about this top line growth opportunity, but also the additional margin opportunities that will bring the division in for Raven Industries.
So just to summarize a couple of key points that I want to make sure — that I that I remind you of in this presentation. The first is that Autonomy and Ag is here today. We’re building on a tremendous legacy in Raven ATD in precision agriculture. And we’re now moving it forward through semi-Autonomy to Autonomy. So it’s here today.
Our investments have allowed us to achieve this and mitigated the risk of this move, and we’ll really allow us to create that differentiating position. The value proposition is strong not only for the farmer but for Raven. And it’s going to drive the investments that we’ll need for this future.
We’re going to develop machine platforms and technologies. We’re not just going to be a technology provider, we’re now an OEM for our prime mover platforms. And we’ll add more in the future. That will really change the way Raven can do business and the way we can bring technology to market. We’re going to target all major crop types, all use cases and all world areas that are relevant. This will allow the tremendous upside growth that we expect.
And finally, we’re in the pole position. We’ve gotten there with our endowment, with all the technologies that we’ve been developing. But with these two acquisitions, we’ve really cemented that role. We’re committed to Autonomy and Ag, we’re urgent about the future, and we’re ready to deliver on Autonomy and Ag. Thank you very much.
Thank you, Wade. So, we’re going to take a short break, couple of minutes to assemble our speakers up here and to compile your questions. Just a couple of reminders before we do that.
If you go to the top of the application, you’ll see a box there where you can enter your questions. Please still say ask a question, you type your question in there and hit enter. That will come to us live.
Secondly, we’re going to ask participants today to focus their questions on today’s event, and the strategic platforms for growth. I realized that we reported some very strong results this morning. But we’d prefer to handle those questions offline as we typically do in a one on one fashion.
So give us a couple minutes and we’ll be right back.
Alright. Thanks for joining back with us, everybody.
We’re looking forward to the Q&A segment here and I’d asked Steven Brazones to really lead and moderate this section of our event this morning. I do want to thanks Lon and Scott and Wade for your presentations. I think they’re just fantastic and gave a lot more color and depth to what we’re doing here.
So with that, let’s go ahead and get started with our Q&A section and Steven take it away.
All right. So this morning we have Jared Stearns, our Manager of Investor Relations off-camera. He’s been busy compiling your questions and he’s going to lead us through the Q&A session, and we look forward to your questions, Jared.
A – Jared Stearns
All right. Thank you, Steven. First question is from Joe Mondillo with Sidoti. Yes. In regard to Thunderhead, can you talk about the size of the addressable market? Also, what are the additional verticals, the most growth opportunity behind the Department of Defense?
So, the short answer is that, it’s really big. And I’d mentioned that there are billions of dollars that are put into existing capabilities, but the reality is with our stratospheric platforms, is that we are creating a new market. It is all the domains that the military is used to operating in with land, sea, air space and cyberspace. The stratosphere is largely untapped. And the first one to really get a position in that market is it’s going to have a unique advantage on a really large and growing new capability within the Department of Defense. So I think, like to say that it’s a potential of billions is not inappropriate.
Thank you. Next question is also from Joe, Sidoti. Engineer films relative to your CapEx plans and new composite product introductions. How do you see your total addressable size growing over the next several years? And how does that growth look in year one versus two, three and four?
So look, this is something we spent a lot of time on understanding our markets. And we started from the standpoint of the customers we’ve got and the opportunities that we have that are right before us. And we quickly moved to the markets that we don’t have, but the markets that we believe are going to present themselves. There’s no secret that as cars become more autonomous, just like ag equipment, we believe that the ability for a tractor trailer to be weight less and to be provide more efficiency to enable electric power, those types of things is going to place us squarely, where we need to be with the technology we’re going for. So to answer your question, we see the market, the market share, or the market size over the next three years, we think that we’re going to fill it with the markets that we already serve, but we think in years, four, five, and six to get to the five X, our current market, we’re going to move into a lot of different areas, where the five X market that we have now that we talk about is, is probably a low estimate.
The next question is from Chris Moore with CGS Securities. What was the driver behind the decision to delay AutoCart? Does that push back intro of other implements?
I mean, as we acquired a Smart Ag last year, we started with a technology that, as I mentioned was really in a good shape. It was world-class in terms of the type of technologies that team had brought together, but they didn’t have the market experience that Raven does, frankly. And so as we looked at that technology and we looked at the individual components, we felt it was necessary to make some improvements, to ruggedize it, to make it more predictable and deliver the kind of user experience in the field that our customers demanded and what is consistent with our Raven current portfolio of products.
And so we made the decision here this summer that we were going to delay our launch by a couple of months. We just simply wanted more field time with AutoCart to ensure that we had the data. We understood how it performed in a lot of different use cases, and we were confident in its release. So we did that that’s the new release date now, December 1. No, it’s not going to impact other of the launches we do with the Raven autonomy, this was really a specific and discreet decision we made around AutoCart in purely to make sure that the type of product we released meets our customer expectations both in terms of quality and value.
All right, the next sets of questions are from Will Herald with [Capco].
How will these advances actually go to the market and customers autonomy get adopted and become standards?
Yes, it’ll depend upon the technology, frankly. If you look at AutoCart and we use that maybe as a first example, we have an initial dealer network that we’ve established with AutoCart around North America, mostly in the United States, frankly, initially. Because we’ll be bringing AutoCart forward, really for row crop harvesting and in some small grain in the upper Midwest. We also have a few dealers out on the West coast because we’ve already seen AutoCart being utilized for vegetable harvesting. So AutoCart principally will go through that dealer network initially having a couple of key direct sales people involved in managing network and supporting our customers.
When we look at DOT, it’s a little bit different story. We’ve got a direct sales team up in Canada that will initially sell DOT. We know that a lot of equipment is sold through a dealer network. So we’re evaluating that and it’s quite possible. We’ll have dealers as part of our go to market strategy. But we also anticipate some centers of excellence or regional centers that will establish that. Will not only be outlets for the sale of that technology and other Raven Autonomy Solutions, but also to provide a location for training for customers come in and see the unit’s, see them operate and make a buying decision.
So it’ll be a mixed model as it relates to DOT.
Also related to DOT, how will this become widely used? And how will you get OEMs to build implements to be compatible with that?
Yes, in terms of DOT and its use case currently, the crops that we’re targeting it really is a focus commercial development and release for DOT. First in Western Canada on small grains, but as I’m sure you know small grains are grown all around the world. So we’ll see an expansion beyond Western Canada to there’s other regions of the world in time.
In terms of implements and how OEMs will interact with, say the DOT platform specifically? We’re in conversations with a whole range of OEM partners, Tier 1, Tier 2 that want to develop implements for DOT. That’s not something we’ve had to go beat the bushes for. They’ve come to us and said, hey, we see this as the future. Autonomy is going to take hold, how do we participate? How could we develop and implement that will make with DOT and be able to execute as the current implements do?
So we’re frankly in discussions with them about that. There’ll be design exchanges that will allow that so they know how to link to the platform, and then communication or software interfaces and protocols that will also have to be developed. But we’ll do that in collaboration with those partners.
Also in regards to Raven Autonomy. How will you be able to fund this level of investment?
Yes, so from a capital allocation standpoint. We’ve taken a look at the investments across all three of our operating divisions and across all three strategic platforms for growth. And we’re going to be putting our balance sheet to work. So, at this particular point in time, we have zero debt on our balance sheet and about $20 million in cash. And we expect to put that balance sheet to work. It’s not inconceivable that we’d have 2 to 2.5 times debt to EBITDA leverage on our balance sheet, two to three years from today. And we are geared up for that.
This next question is from Joe, Sidoti again. So for Raven Autonomy, can you talk about competition specifically? How challenging is it to compete against the OEMs in house R&D budgets?
Yes, what I’d like to convey is that, we certainly will see OEM competition. But we’ll also see and we’re seeing it today OEM partnership on autonomy. So Raven has, one of the two ways we go to market is through in factory installation with our OEM partners. And we’ve been very gratified to see how much they’ve come forward and said, hey, we want these technologies on our platforms also.
So we see that as a partnership that will continue. There certainly our large OEMs out there that won’t want to participate in they’ll compete with us. And, we know that it will come. We see it in our current perception ag go to market strategy. But we feel, again, uniquely positioned to be able to handle that. Not only do we feel like we have a lead time, and we know that we’re building a strong intellectual property position, but we also as Raven can be much more nimble. We can be quicker. A lot of these large OEMs have tremendous installed capacity and a legacy of building demand platforms.
It’ll be a little challenging for them to convert those. Raven won’t be burdened with that and so we’ll move quicker. We’ll bring prime movers to market. And we will be successful in that endeavor.
Yes, just add to that that. Our vision is really not to compete head-to-head with large incumbents in the Ag, especially tractor space. We are building an Ag technology and equipment company for the future, and we have visions to continue to bring different platforms. So that future Ag market that will compete differently, and we get to use the technology that we’ve been developing for years. The acquisitions that we’ve made recently supplement that technology extremely well. And as you see, the DOT platform looks nothing like a traditional tractor, and we’ll continue to develop other platforms that probably move further away from the traditional platform and Ag equipment that you see today and more towards what we see for the future.
This next question is from Jennifer Oppold at Alpine Peaks. The prices come down for the composites acquisitions you are looking at.
Yes. So, no, to be quite honest. Composite, one of the things that we discovered, we’ve been working on doing an acquisition in composites actually for quite some time and for doing an acquisition in films for quite some time, that isn’t a secret. One of the things that we found in the process specific to composites, however, is that finding exactly what we’re looking for is not isn’t readily available. And it’s one of the reasons why we get really excited about greenfielding certain elements of our composite strategy. So to answer your question succinctly, the valuations have not come down. Their appetite to sell has not gone up, but we are not backing down from our strategy to find a good acquisition that we can layer into this strategy and be successful.
These next set of questions are from Ben Klieve with National Securities. Across the Thunderhead platform. Do you hope to be a prime or subcontractor? If prime, do you have the breadth of capabilities to be named on major ISR IDIQs?
Yes. So, unabashedly, we are moving towards a position of being a prime integrated service provider with the technology that we’ve created, and the positions we have currently is, we have established ourselves as a leader in beyond just building a platform. But integration, the services and being able to manage the contract to a medium-sized aerospace and defense provider is squarely in the center of our strategy. So the short answer to that question is, yes, we are on our path to being a prime, and we are in a position to manage that.
Also from Ben, what is the composite product coming to market this fiscal year?
So, look, we’re going to start with what we know, and what we’re really good at and where we’ve been successful in the past, and that’s going to be with surface films that marry up with composites where the inner layer, isn’t a proprietary Raven product. But that’s where we’re going to find early success and build from there. But it’s absolutely our intention to move closer and closer into that market by investing in tapes and tapes lines and perfecting that expertise in the lamination processes around those, so that we can be a real major player in that market in the near and long-term.
Just to add on to that, we announced today that we’re going to be spending about $10 million in the greenfield operation in the third quarter, and that’s to bring in production lines into a facility on the East Coast. And we would expect revenues from that to start generating in the $10 million to $15 million range next year. So, there’s a little bit of a delay in the delivery of the equipment, given the pandemic, but we are on track for a ramp in composite revenues next year.
Jared, before we jumped to the next question, let’s pause a little bit after each one. And I want to step back to the question on the stratospheric balloons and just remind everybody that yes, we are pursuing a prime contractor status and we are becoming an integrator and we’re going to provide additional technical services all around that. But our strategy has always been, and it continues to be an Aerostar to build the most innovative technology in those spaces. And that’s what we lead with. That’s how we separate ourselves from our competitors is that innovation that’s embedded in our ability to navigate these stratospheric platforms into build platforms that lasts several hundred days now in the stratosphere. And that’s what sets us apart, but it’s also what allows us to drive strong margins.
Next couple of questions is from Ben, how critical is rural broadband access to the autonomy products?
Yes, as we look at the core Raven technologies, communication connectivity is really critical.
And so whether it be cellular capability or connectivity radio even as we get machines in the field and close proximity, a Wi-Fi Bluetooth capability to be connected, it is critical. Now a lot of the operations once the, the mission has been received can be executed without having that continuous connectivity. And we can then when we returned back into a zone of connectivity, upload information, receive additional commands, et cetera. When we start talking about multiple machine coordination in the field, again, if we lose cellular, we can be connected machine to machine through other types of communication like radio. And that’ll augment that to some degree, but we certainly need in time this technology to continue to not only improves, but also to proliferate in rural areas or in remote areas where connectivity is less solid today.
The next piece I’d add if I could, is that as AI develops and as these machines have a greater and greater ability to formed autonomous, if I can use that word at the edge without being connected to the cloud, some of that will go away and the machines will get smarter, through the software and the intelligence we’ll bring on these platforms and there’ll be a be able to react better in situations where connectivity might be lost, but it certainly is a key and important element to us in the future.
And I’d just say, one of the benefits of being in precision ag for as long as we have been is that we’ve been through cycles like this before. I remember when we first got into auto guidance, convergence times were tremendous lawn, and we realized that will get resolved over time, not necessarily through us, but the market will demand it and it did. And broad rates, weren’t sufficient to transmit data at a rate initially when we were moving files off of field into a office, but we knew that’ll get resolved and it did. And I’m sure that that connectivity throughout our rural markets will continue to improve over the horizon that we intend to bring our autonomy solutions to market.
These next set of questions are from Kristen Olin with Oppenheimer. In regards to composite strategy, can you expand on the current M&A pipeline and provide an update on how you viewed a cadence of acquisitions?
Yes, so, we’ve done quite a bit of work over the last 12 months and identifying a number of candidates for acquisition in the composite space. And we continue to build that pipeline. And, so there’s lots of conversations that are going on right now with perspective acquisition targets. And we’d expect that to continue to grow throughout the rest of this year and into next year. From an acquisition standpoint, cadence standpoint, we’re on track and we believe that we’re going to be able to do at least one transaction a year, over the next five years. So nothing has changed with respect to the cadence that we expect.
Also from Kristen at Oppenheimer. Can you expand on OEM capabilities and what types of investments need to be made over the near term from a manufacturing capacity standpoint?
So, I’m assuming that’s related to autonomy. So let me answer it this way. Raven is going to establish its own capability to manufacture. We’re in the process of acquiring those locations, facilities and staining that up. Currently today, we do that in a relationship with Steve Master, which was the original owner of DOT and that can bridge us to we get to that point. Long-term as we as we grow DOT and we bring another prime mover platforms and large part of it will depend upon how we do that and whether that in part is through partnership, or Raven develops its own prime mover platform.
Obviously, if we develop our own, will intend to probably manufacturer those our own. But there may be times when we also bring technology onto a partner platform, and we simply bring that text back or componentry to their existing systems if a manufacturer. So I think it’ll be a mixed model.
Also from Kristian, given the current low interest environment, how should we think about funding these investments?
Yes, just to reiterate. I think, from a capital allocation standpoint, we’re going to be putting our balance sheet to work. And so the cost of financing to the cost of debt is very advantageous to us. We’ve got a great revolving credit facility in place that’s got $100 million of capacity, that’s expandable to $200 million. On top of that, I’d like to address the dividend as well. A lot of companies have to cut their dividend. And we wanted to cut our dividend. And the reason we wanted to cut the dividend is because of all the growth opportunities that we have in front of us.
So from a capital allocation standpoint, it’s much more important for us to reinvest those funds into these three opportunities as to it is to give it back. So combination of that — excuse me, with the leverage on the balance sheet is how we intend to fund this growth.
And strong cash flows we demonstrated last six months.
This next question is from Chris Strom with Mairs & Power. How the AutoCart be priced from an annual selling price perspective? And what kind of penetration do you need to meet your goals.
So AutoCart will have a an MSRP going to the marketplace in December at 55,000 for the complete system. So that includes all the various technologies for perception, for hazard detection, et cetera, cabling, everything that needs that is needed both on the tractor and the harvester for the system to work.
In addition, there’ll be an annual subscription that will roll out with that, which will allow the customer to receive not only updates to the system, but also as we add more features, the availability to connect with those and add those to the suite of technology that they’ll deploy.
In terms of how we look at and rolling it out commercially, we’re obviously targeting initially the upper Midwest. We’ve been very open about that for corn and soybean harvesting. But there’s also opportunity and there’s regions for small grains as well. So, we’ll see it utilized there. And then expanding to the west coast, the United States up into Canada for small grain. AutoCart, we believe will be very rapidly adopted.
We’re receiving inquiries all around the world, people wanting to see systems today. So we will move it internationally quickly from there. And as we ramp up AutoCart sales over the next three, four years by 2025 we’ll be selling over 2000 units a year. That’s in our plan, we believe that’s very realistic and attainable.
Hey Wade, I just — we should talk a little bit about that really, AutoCart is the first use case. So when we purchased Smart Ag, we purchased a company that had some deep strength in perception, path planning, using artificial intelligence and machine learning to build out models for collision avoidance and lots of other utility that we bring to Autonomy. We’re expressing that in AutoCart today, which is one operation, bringing , taking a tractor with a grain cart behind it, laying it up next year combined to offload, but that’s just the first.
We can go to auto till, we can go to auto spray. There’s many, many use cases that can follow, and I think that’s an important distinction that while we do envision and we will become the Ag equipment company in the future, we also have this beautiful tech stack that we can take to our other partners and allow the enablement of autonomy in that fashion. So, yes.
You said it much better than I would have. And I think that really is the bright future. This is a very fungible platform. We can advance it and take it to all different applications, which again, opens us up internationally, opens up all crop types in use cases, whether they be traditional or maybe permanent planted viticulture, all these will become accessible to us with this tech stack capability.
Okay. This next question is from Chris Strauss at [Merrison] Power. Why is Canada the first market for DOT and how is it different from the U.S. market? And is there any reason why you couldn’t launch it in a U.S. market first?
Yes. As we look at DOT and we look at the history of DOT, there are a couple of reasons why we’re focusing on Western Canada first. First, that’s where DOT was born, and there has been a tremendous amount of exposure to that market through what SeedMaster did as they brought that startup business forward and began putting systems out into the field. So, we have a lot of people, extraordinarily interested, already ready customers that want to bring a DOT onto their farm and see it operate. So that’s one obvious reason.
Secondly, the DOT platform itself is really targeted to small grains, and I won’t get into a lot of the reasons why there’s issues in terms of reasons, based on how it’s designed. It’s linked it’s with et cetera, but it’s really targeted for small grains, and if you look at where small grains are grown in North America, although we see a fair bit in the United States, certainly down in the Dakotas and in other areas, there’s just a tremendous market opportunity in Canada that’s waiting for DOT. So, we’re going to start there. It’s also where our team is based in Regina and where we’ll have our initial capability to produce DOT and service it. But as we look out beyond that, anywhere small grains are grown, we can take DOT and be successful in the marketplace. And so, we’re going to look beyond Western Canada pretty quickly.
I’d just add that, everything you said, I agree with, and I would say that, the current form factor of DOT is really optimized for small grain and broad acre craft conditions. But that’s like any successful Ag equipment company really starts regionally, because they’re invented by usually people who have experienced growing crops in those areas and they build a solution and they invent it, and that’s exactly what happened with DOT.
So the DOT platform of today is optimized for these small grains. It makes with a seeder, with a sprayer and a spreader for those areas. It’s a size that works best in those areas. But we can take, we’ll take that same concept, the utility of a platform that can do multiple operations into other marketplaces eventually, and we look forward to that.
Okay. This next question is from Steven Fisher with UBS. What does the machine need to have to be DOT ready?
Yes. So, let me turn that question around. Today, it’s really the implement, so we’re bringing forward the U-shaped platform and it’s what is the implement need to do to be able to mate with DOT and perform an agriculture operation? So, there’s a couple of different things: One, as the owner of DOT in that technology and the intellectual property around that we would need to work with that provider. We would provide them the mechanical design, et cetera to be able to make those linkages and hook with DOT and do that in the proper way. There’s also a software handshake and the ability for that platform to know what it’s connected to and to execute that operation. So there’s a number of things, both on a design and a hardware perspective that an implement provider would need, but also the software protocols to engage with DOTs. That’s really how that platform is envisioned to grow. We currently have three implements; we’re looking at a couple more in the next 12, 18 months. And then in time we believe DOT we’ll be able to mate with, 8, 9, 10 implements to really broadly expand its ability to perform lots of different operations on farm. As Dan mentioned, that will in time also allow us to move into other crops beyond the small grains where we’re targeting.
All right, this will be our last question of the day. It comes from [Bill Baldwin]. Can you offer insight into the other platforms? Raven autonomy may introduce in the future.
So obviously we’re starting with DOT and with AutoCart, and there a lot of nuances there. And Dan mentioned that they’re very eloquently when you look at AutoCart and what we actually acquired, it’s not just a use case, certainly that is the first product we’re bringing to market in the system, but it is that perception capability and within that is not only the sensors and those technologies, but how you bring those together into a perception module. And then how do you control that through command and control through an executive controller and the next, how you transition that to the next platform.
So as we look forward, whether it’s new prime movers that we might pursue for pulling platforms or spraying platforms, there’s also the ability to take this tech stack onto existing platforms or where other machines for instance a sprayer that’s running manned operations could really benefit from perception capability, perception technology, because running that very expensive equipment or booms into a tree or a fence posts can be a traumatic event and be very expensive for the farmer or the ag retailer.
So we see these technologies being, being translatable to a lots of different platforms and we’ll do that as part of our solution. But again prime mover platforms, pulling platforms, high clearance sprayers these are all platforms that we believe need to be made autonomous in the future. First do a step of semi-autonomy, but then to full autonomy and we’re going to pursue all of those.
Well, thank you everybody for joining us today. We’re at our allotted time. I just like to thank our presenters today. You all did a fantastic job. Also a thank you to our IR team and the communications team for organizing today’s event. Thank you.